• Crypto is getting more and more institutionalised and maturing well, says Mohamed El-Erian.
• The top economist pointed to the flip in sentiment from major players such as BlackRock as good for crypto.
• El-Erian also commented on US inflation.

Mohamed El-Erian, the chief economic advisor at Allianz, says the cryptocurrency industry is getting more institutionalized and maturing well. The economist and president of Queen’s College, Cambridge, shared the outlook during an interview with CNBC’s “Squawk Box” show on Tuesday.

His comments also came as Bitcoin bounced off lows seen on Monday to trade above $26,000 as the broader market awaits the latest on US inflation. BTC was also up as asset manager Franklin Templeton filed for a spot bitcoin ETF to add to those of BlackRock, Fidelity and others.

Crypto becoming part of global ecosystem

According to El-Erian, the growing embrace of crypto by big mainstream players can only be good for the sector even amid the wider scope of Fed’s rates path.

“Crypto is settling as part of the ecosystem. People have recognized it’s not the new global currency. People have also realized it’s not going to disappear tomorrow. It’s been institutionalized. If I were a crypto person, this maturation process is a good thing,” he told CNBC.

The investor also noted that headline inflation is likely to “prove much more complicated”, with core inflation less well behaved amid the Fed’s battle to bring it to its desired 2% level. 

In his opinion, the market may have to absorb the notion that the trajectory is “higher for longer.” He also thinks that the assumption is that the Fed will have to cut rates beginning early 2024, but this may not happen.

El-Erian, who said he could not predict where the crypto market is headed in terms of price performance, is however optimistic about crypto’s future in relation to the growing adoption by Wall Street giants. It is this perspective that could outline the potential impact to cryptocurrency prices.

Crypto analyst Lark Davis says the cryptocurrency market is maturing and could soon post price moves that show volatility ratios similar to that seen in tech stocks.

According to the analyst, the first phase involves a lot of volatility before a maturing market sees that gradually reduce amid consistent growth.

Commenting on the current price action across major cryptocurrencies, Davis said:

“The #crypto market is going to start behaving like tech stocks. Lots of early volatility, then we start to see basically up only (with turbulence) as the user bases continue to grow.”

He looks at a scenario where an asset like Bitcoin experiences major price corrections today not being different from leading tech stocks like Amazon Inc., (NASDAQ: AMZN).

“For reference Amazon hasn’t seen any drawdowns over 40% since 2011!!!! Crypto is maturing,” he tweeted.

Bitcoin has declined by about 3% on the daily timeframe and there are also losses on the day for most other digital assets. Ethereum, Binance Coin, Cardano and Solana are among the major losers in the top ten cryptocurrencies by market cap, while there are declines for Avalanche, Polkadot, and Dogecoin.

This scenario is largely replicated in the stock market, where the Dow Jones, S&P 500, and Nasdaq closed lower on Friday. Blue-chip stocks such as Apple, Google, and Microsoft have all slipped over the past few days amid broader concerns over Covid-19 and its impact on economic recovery plans.

BTC’s largest price crashes

Bitcoin, which rose to highs of $69,000 in November, has lost over 33% of its value in the past month. The retreat sees BTC trade at lows of $45,000 as of writing. However, this is not the biggest dump for the flagship cryptocurrency. In the past decade, the BTC price has shrunk more than 80% on three occasions and 50%+ on four.

The biggest crashes saw BTC tank 99% in 2011 and 84% in 2013- both corrections linked to the now-defunct Mt.Gox Bitcoin exchange. The latest dump is a 53% crash in May following China’s crackdown on crypto mining.